In recognition of the ever-increasing importance of international arbitration as a method of resolving international commercial disputes, Burundi recently became the 150th country to adopt the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”), which will enter into force in Burundi during September 2014 pursuant to the accession decree. This notable achievement for the New York Convention and Burundi provides an excellent opportunity to revisit the fundamental significance of the New York Convention and some of its primary benefits in the context of enforcing international arbitration awards.

Significance of the New York Convention

The New York Convention, a treaty which was adopted by a United Nation diplomatic conference on June 10, 1958 and which entered into force on June 7, 1959, is the mechanism by which parties facilitate the enforcement of international arbitral awards in signatory states, now consisting of 150 countries. Despite its title, the New York Convention also facilitates the enforcement of arbitration agreement. Both aspects are important drivers of the rising use of arbitration to resolve international disputes. The treaty requires that courts of contracting states to give effect to private agreements to arbitrate as well as recognize and enforce arbitration awards rendered in other contracting states.

As the U.S. Supreme Court noted in Scherk v. Alberto-Culver, 417 U.S. 506, 520 n.15 (1973):

The goal of the Convention, and the principal purpose underlying American adoption and implementation of it, was to encourage the recognition and enforcement of commercial arbitration agreements in international contracts and to unify the standards by which agreements to arbitrate are observed and arbitral awards are enforced in the signatory countries. (emphasis supplied)

In addition, while one of its aims is to prevent signatories from discriminating against foreign and non-domestic arbitral awards, the New York Convention provides an alternative means (which is many times much more effective) to resolve international disputes. For example, if a party pursues litigation against a foreign party and obtains a domestic judgment, it is often burdensome to enforce that judgment in a foreign country and collect on it. On the other hand, if a party pursues an international arbitration against a foreign party and that foreign party has assets in one of the 150 countries that are signatories to the New York Convention, it will likely be significantly easier to get the arbitral award recognized and convert it into a local judgment for enforcement against those assets.

As exemplified in the case of Burundi, the New York Convention brings much needed clarity and uniformity to the standards for enforcing an arbitral award there, which is generally beneficial to both international and domestic investors. This is because without the New York Convention, like attempting to enforce a domestic judgment in a foreign country, enforcement of foreign arbitral awards can be highly unpredictable and governed by diverse legal standards.

Limited Challenges to Enforcement of an Arbitral Award Under the New York Convention

In general, contracting states, or signatories, must recognize as binding and enforce international arbitral awards in accordance with Article III of the New York Convention. A party seeking enforcement of a foreign award must supply to the local court (1) the arbitral award and (2) the arbitration agreement, as outlined in Article IV of the New York Convention. Refusal of the local court to enforce the award is limited to the following grounds set forth in Article V:

First, a local court may refuse to enforce an award if a party to the arbitration agreement was, under the law applicable to it, under some incapacity; or if the arbitration agreement that the award was based upon was not valid under its governing law (Article V(1)(a));

Second, a local court may refuse to enforce an award if a party was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings, or was otherwise unable to present its case (Article V(1)(b));

Third, a local court may refuse to enforce an award if the award deals with an issue not contemplated by or covered by the submission to arbitration, or if it contains matters beyond the scope of the arbitration (with the exception that such an award may be enforced to the extent that the objectionable material can be separated from those matters not objectionable) (Article (V)(1)(c));

Fourth, a local court may refuse to enforce an award if the composition of the arbitral tribunal was not in accordance with the agreement of the parties (or, failing such agreement, the law of the place where the hearing took place) (Article V(1)(d));

Fifth, a local court may refuse to enforce an award if the award has not yet become binding upon the parties, or has been set aside or suspended by a competent authority, either in the country where the arbitration took place, or pursuant to the law of the arbitration agreement (Article V(1)(e));

Sixth, a local court may refuse to enforce an award if the subject matter of the award is not capable of resolution by arbitration (Article V(2)(a)); or

Seventh, a local court may refuse to enforce an award if enforcement would be contrary to “public policy” (Article V(2)(b)).

Of note, in the text of the New York Convention, there is no refusal of enforcement for “manifest disregard of the law” or any other similar standard that may contemplate a limited “appellate” review of the award’s reasoning. Thus, it is easy to see why these limited means in the New York Convention for refusing to enforce an award give rise to predictability, and in turn, ease of enforcement of the award. In turn, Burundi may benefit from increased foreign investment because of the security and benefits to investors the New York Convention provides.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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